As an Association of Southeast Asian Nations (ASEAN) member with a fast-growing economy, the Philippines demonstrates a fairly optimistic outlook and strategy on technology, having developed initiatives for enhanced internet accessibility, smart cities, and greater use of IT to operate and provide government services. Effective and actionable initiatives seem warranted, though, since internet speeds are quite slow and the cloud computing market is in a nascent stage as businesses begin to learn the value of cloud adoption.

While there are approximately 30 companies that own a telecommunications license, the country's telecom industry is characterized by a duopoly, with PLDT and Globe Telecom. The government anticipates selecting a third telco player through an auction by June, with hopes to improve quality of service. Out of the country's five multi-tenant datacenter (MTDC) providers, PLDT and Globe Telecom serve as the main retail colocation providers for businesses. MTDC builds are typically smaller, with most totaling no more than 10,000 square feet.

The 451 Take

PLDT, a provider of telecom and IT services and one of the country's largest companies, has been a force in the fairly small datacenter market, and is likely to maintain its prominence in terms of facility count and size. With regular new builds and development plans in the pipeline, there is steady demand in the Philippines. Drivers include online gaming, BPO firms and CDNs, as well as booming content and data from internet traffic, particularly streaming. It will serve providers well to adapt their offerings to the needs of domestic customers – which represent a majority of their customer base, although providers are pushing for higher global penetration – whether that means more managed services, assisting with cloud migration or supporting varying deployment types. Cities with growing economies and investment, such as Davao and Cebu, will likely remain attractive markets. Continuing subsea cable projects such as JUPITER will also shape the market – companies in the Philippines and beyond will likely strive to establish edge facilities in more remote areas like subsea cable stations, to achieve lower latency and meet bandwidth demand.

South of Taiwan and east of the South China Sea lies the Philippine archipelago, consisting of over 7,000 islands. Before achieving independence in 1946, the Philippines was a Spanish colony for centuries, occupied by Japan and then the United States. Spanish and US influences have endured, as evident in the country's religion, language and government type. With a population of roughly 104 billion, the Philippines is the 13th most populous country in the world. One-eighth of the population resides in Manila.

Primary industries include natural resources, manufacturing of electronics, food and beverage, textiles, and equipment for transport and communications. While the Philippines is known for generating remittances from 10 million offshore laborers, it has also become a prime location for business process outsourcing – to such an extent that BPO has surpassed remittances as a source of GDP. Multinational companies find the Philippines to be a relatively attractive option for employing remote workers because of the English-speaking majority, a well-educated young population, and a general familiarity with US culture and apparatus.

Market drivers

The Philippines earned itself a spot on The World Bank's 2017 top 10 fastest-growing economies list. Economic growth has averaged over 6% each year from 2011-2017, and GDP in 2017 was an estimated $874.5bn. The economy's ability to stay intact following global financial crises can be attributed to factors such as the country's low reliance on exports, robust domestic consumption and flourishing services industry. According to the United Nations, while Foreign Direct Investment (FDI) to Southeast Asian countries decreased overall in 2016, the Philippines' FDI inflows jumped more than 60% (from 2015) to $8bn. The Philippines' inbound FDI is expected to continue to trend upward, specifically flowing from within the South Asia and Southeast Asia area, with Chinese firms investing $10bn into aviation, iron and steel, shipbuilding, oil, and renewable energy.

The growth rate was lower in 2017 than in 2016, but Bangko Sentral ng Pilipinas (BSP) reported a record-high level of incoming FDI. However, regulations restricting foreign involvement to certain activities may continue to prevent the Philippines from receiving higher inflows of FDI. The nation is home to a few public companies with sales surpassing $1bn. Ayala, a $4.2bn company with a $10.7bn market cap, has various investments in technology and telecommunications firms (including Globe Telecom), as well as manufacturing, utilities, power, real estate and financial services organizations.

While providers cite demand coming from a variety of industries, a sizable portion of the datacenter customer base belongs to the online gaming industry. In tandem with the growth of business process outsourcing, datacenter needs from the industry have also continued to rise. MTDC owners claim that they see traction with public customers, as well. The vertical noted as having a slower rate of adoption is local banking, perhaps due to regulations. The amount of leased space may range from six racks for a global bank to over 100 racks for a CDN provider, while local businesses are likely to deploy in the single rack to single server range.

The Philippines is recognized as having some of the priciest electricity in Southeast Asia (Figure 1). The National Grid Corporation of the Philippines (NGCP), a privately owned body, is responsible for managing the country's three electric grids in Luzon, Visayas and Mindanao. The government agency National Transmission Corporation owns the transmission and distribution assets, such as towers and substations. In 2016, the breakdown of power generation in terms of source was 47.7% coal, 24.2% renewable energy and 21% natural gas. In 2014, 45.8% of the Philippines' energy use was imported, but this may continue to change since the government plans to increase indigenous coal production by 100%. The country's estimated electricity production for 2016 is 90.8 billion kWh.

Late in 2017, congress approved the Tax Reform for Acceleration and Inclusion (TRAIN) bill, intended to boost state revenue and simplify the tax system. The bill increases excise taxes on coal from P10 ($0.19)/metric ton to P50 in the first year, P100 in the second year and P150 in the third, which may lead to more expensive electricity rates. However, through the 2012-2030 Philippine Energy Plan (PEP) and National Renewable Energy Program (NREP), the Philippines is striving for cleaner and more accessible, efficient and reliable energy. Renewable energy has a targeted 37% share of the energy supply, or 9,524.99MW of total capacity by 2030, with hydropower as the main contributor.

Figure 1. 2015 ASEAN Electricity Rates, in Peso/kWh
Source: The Philippines Department of Energy Power Development Plan 2016-2040

Subsea cables
Subsea cable systems will remain crucial to accommodate the country's increased internet service demand and high usage of social media. Thirteen subsea cable networks run through the Philippines, and nine of them are either fully or partially owned by Globe Telecom or PLDT. A consortium of global corporations (PLDT, Japan's NTT Communications and SoftBank, Hong Kong's PCCW Global, Facebook, and Amazon) are joining forces to implement JUPITER, an 8,700-mile long fiber-optic subsea cable that connects Hermosa Beach, California, to Shima and Maryuama, Japan, and PLDT's cable landing station in Daet, Philippines. PLDT is expected to invest P7bn in the project, which will be complete by 2020, with a capacity of 60Tbps or more. PLDT's participation is driven by an anticipated influx of digital adoption, leading to increased data traffic, particularly streaming, which will necessitate greater bandwidth and faster internet speeds. The company has also stated that servers outside of the country support much of the content customers access, which underscores the importance of ensuring robust undersea cable networks.

Globe Telecom is also a member of a consortium that finished building the Southeast Asia-United States (SEA-US) subsea cable network in August 2017. Covering 9,000 miles, the $250m system delivers a 20Tbps capacity and connects Davao, Philippines, with Guam, Hawaii and Los Angeles.

Natural risks
Being located along the typhoon belt, the Philippines is susceptible to volcanic eruptions and earthquakes, as well as tsunamis and several cyclonic storms throughout the year. For the most part, high-flood-risk areas border or are close to rivers, such as the Pasig River in Manila, Marikina River in Pasig, Baloc-Baloc Creek near Paranque and the San Juan River in Quezon City. According to the Department of Energy, from 2011-2015 there were eight recorded natural disasters (typhoons, tropical storms and an earthquake) that impacted the power grid, but few occurred in main cities or datacenter markets.

Cloud computing market
The Philippines' cloud computing market is still in the early stages of development. Local providers have been positive about the market potential, indicating strong interest from the public sector since The Department of Information and Communications Technology (DICT) instituted a policy that encourages the use of cloud for governmental ICT infrastructure.

Cloud vendors include PLDT APLHA Enterprise (PLDT's corporate arm), Globe Telecom, Bayan Telecommunications' Bayan Business, CloudSigma, and web hosting companies Zoom Hosting and MSWEB Network. Other local hosting and IT providers joining the cloud fray include ReadySpace, Philippines Hosting and Philippines Cloud Hosting, Cloud Solutions LLC, DataOne Asia and Arcus IT. Futjitsu, Hewlett Packard Enterprise, Dell EMC, IBM and other global technology vendors are present in the local market, as well.

Key markets

Most of the country's datacenters are located in Manila or neighboring regions, namely Makati, Quezon City, Pasig City, Paranaque and Taguig. As the Philippines' second-largest city behind Manila, Cebu has recently become a hot area for economic growth thanks to heightened investment; strong manufacturing, export and service sectors; developing infrastructure; and rising tourism, which have brought in employment opportunities. PLDT's upcoming datacenter addition in Cebu will also be its second in the city, signaling healthy demand from sectors that are spending on cloud and colocation, including banking, media and IT.

Situated on the southern island of Mindanao, Davao is another populous city with growing wealth that is seeing datacenter activity. The city has bustling tourism and agricultural sectors, but communications, manufacturing and real estate, among other industry and services subsectors, will fuel future growth. In a strategic move that will support local business' connectivity requirements, Globe Telecom is building a datacenter at the site of SEA-US's Davao cable landing station. In February, PLDT opened its datacenter, in-line with the expected investment in Mindanao.

Competitive overview

The Philippines' datacenter market is not notably crowded or dynamic; most of it is dominated by PLDT and Globe Telecom, which make up the country's telecommunications duopoly. New entrants, and particularly foreign-based ones, may struggle to make headway due to the long-established telcos' presence.

Initially managed under American ownership, PLDT was established in 1928 through a government law that permitted the company to operate a telephone network. It was nationalized in the 1970s, then renationalized after Filipino President Ferdinand Marcos' tenure. In addition to wireless and fixed-line telecommunications services, PLDT provides internet, data and cloud services. Its datacenter offerings, which fall under ePLDT, the enterprise IT venture of PLDT, include colocation, hosting, disaster recovery/business continuity, managed data security, network management, cloud and other IT services to customers. The company's datacenter business accounts for about 63% of its enterprise business. The construction of its 10th datacenter has put ePLDT's total capacity at 9,000 racks (approximately 174,000 square feet); ePLDT also owns IP Converge Data Services (IPC), which operates three datacenters in Paranaque, Makati and Taguig.

Globe, offering standard telecommunications services in the Philippines, including fixed-line, mobile and broadband internet services, has a portfolio with a range of datacenter services that target its enterprise customers' needs. Services include standard colocation, managed hosting, managed network, dedicated servers, disaster-recovery services and managed security services. The company also has a suite of as-a-service offerings, including backup as a service, storage as a service and compute as a service.

Other companies with colocation offerings on a smaller scale are DataOne Asia, Eastern Communications, IPC reseller First Cagayan Converge Data Center, PCCW Global and South Eastern Data Center.
Stefanie Williams
Associate Analyst

Stefanie Williams joined 451 Research in April 2011. She is a member of the Multi-Tenant Datacenters team, covering North America and Australia. Her key research areas include state and local level incentives and compliance, including FedRAMP, HIPAA, ISO, PCI-DSS, SSAE 16, SOC 2 & 3, and Uptime Institute M&O and Tier Certifications.
Emily Wentworth
Research Associate

Emily Wentworth recently joined 451 Research as a Research Associate. In other roles prior to 451 Research, she has had exposure to technology segments such as cloud applications and telecommunications.

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